Land rights for foreign investors in Mongolia

1) Can a foreign company/foreigner acquire land in the host country, and what forms are permitted: ownership, long-term lease, sublease, servitude?

Land ownership and possession rights are only permissible to Mongolian citizens, companies, and organizations.

A foreign company/foreigner may only become a user of land for a specific purpose, under specified conditions, and for a specified period of time, as outlined in land use and PPP agreements, in compliance with the law.

For the foreign company: The State Great Khural shall issue a decision permitting the use of the land for a specified period, and the Government of Mongolia shall be responsible for determining the land border and the procedure.

For the foreigner: The Governor of the relevant level shall issue a decision permitting the use of the land to the foreigner and stateless person permanently residing in Mongolia for more than 183 days through land auctions for household needs only.

Foreign investors may acquire the land use rights based on a land use agreement, which is established through either an auction or a project selection procedure.

2) Are there restrictions on land categories (agricultural/non-agricultural, border areas, strategic plots, coastal zones) and on size/duration of ownership/use?

Land use by a legal entity in the special protection zone of the water basin and in the sanitary zone of the water supply source is prohibited.

The possession, ownership, and use of pastureland, public land, and land designated for special state needs are also subject to certain restrictions.

Duration of land use: The Government and the State Great Khural shall determine the tenure by issuing a resolution, taking into account the specific purposes and project duration.

3) What is the best way to structure the transaction: purchase of shares in a local landholding company, direct land acquisition, long-term lease through an SPV, concession, or PPP?

The most appropriate way to structure the transaction depends on the nature of the activity. In the case of a purchase of shares in a local landholding company, the company will be reclassified as a foreign-invested entity. Consequently, its land possession rights must be converted into land use rights. In such cases, the Government will grant the land use rights to the foreign-invested company for a specified period and under certain conditions.

4) What approvals and permits are required (government, municipality, land commission, antimonopoly authority), and how long does the process usually take?

The approvals from the Government, the State Great Khural, the Land Office, sectoral authorities, and the Governor at the relevant level are required based on the nature of business and project type. Timing of decision-making: The specific timeline is not specified in the law.

5) How is land due diligence conducted: boundaries, cadastre, encumbrances, servitudes, disputes, mortgages, designated use, environmental and urban planning restrictions?

The implementation of cadastral activities and land management measures aimed at the efficient and appropriate use of land must be carried out by a professional organization authorized by the relevant state administrative body in charge of land affairs, and financed by the individual or legal entity concerned. These activities must comply with the fundamental land management documentation and the applicable technical requirements.

In the case of a request to establish a servitude, the applicant must submit the proposal to the provincial or capital city land authority, together with the cadastral map clearly indicating the boundaries of the affected land.

Land-related matters relevant to due diligence are handled and resolved by the appropriate state administrative bodies, as well as by provincial, capital city, or soum governors.

6) Is it possible to change the designated use of land (re-zoning) for the project, what is the process, timing, risks of refusal, and possible appeals?

The authority to terminate land use rights of individuals and legal entities, as well as to make decisions regarding changes to the location, size, or designated purpose of land, lies with the Governor of the Capital City. In cases where such decisions are disputed, the Capital City Land Dispute Resolution Council shall review and resolve the matter. Additionally, depending on the nature of the dispute, different competent authorities may be responsible for resolving land-related issues.

7) What mechanisms exist to protect rights: registration of title, title insurance (if available), contractual penalties, international arbitration, investment agreements/stabilization clauses?

Land ownership, use, and possession rights shall be registered in the Registration Office of Property Rights.

Depending on the nature of the dispute, land-related conflicts may be resolved by a competent higher-level authority, such as the Governor at the relevant level, the Governor at a higher level, the Land Office at the capital city or district, the Capital City Land Dispute Resolution Council, or, in cases where an arbitration agreement exists, through arbitration. In the absence of such an agreement, disputes shall be resolved by the court.

8) What are the tax and payment aspects: land tax, lease payments/indexation, VAT/profit tax on disposal, incentives for priority investment projects, transfer pricing in land transactions?

Citizens and companies using the land shall pay land fees in accordance with the Law on Land Fees. The land fee shall be set at no more than 0.1% to 1% of the basic valuation of 1 /one/ hectare of land.

The methodology for calculating the value of land possession and use rights, as well as determining the applicable taxes, is established by an order of the Minister of Finance. Taxes are assessed and imposed in accordance with this methodology.

In the case of the sale or transfer of land use rights, the income subject to taxation is determined in accordance with the “Procedure for Imposing Taxes on Income from the Sale or Transfer of Land Possession and Use Rights.”

Additionally, the land title certificate holder is obliged to properly calculate and pay taxes pursuant to the Law on Corporate Income Tax and the Law on Personal Income Tax.

Authors: Bolormaa Volodya, Khulan Ganbold.